Home Values are Not in a Bubble Range

There are some in the real estate industry who believe residential home values have risen too quickly and that current levels are on the verge of another housing bubble. It is understandable to see how this thinking has taken form by looking at a chart of home prices from 2000 to today. As sales prices begin to reach 2006 levels again, some may conclude they will fall. However, this graph includes the anomaly of the price bubble and the correction (the housing crash).

Median-Sales-PriceWhat if the Bubble & Bust didn’t occur?

Let’s assume that instead of the rise and fall in home prices we saw last decade, we just had normal historic appreciation from 2000 to today. According to the 100+ experts questioned for the Home Price Expectation Survey, normal annual appreciation for residential single family homes from 1987 to 1999 was 3.6%.

Starting with the median home price in 2000, I added 3.6% each year since then. Here is that graph intermixed with the above graph.

Median-Historic-PriceThis graph shows that had the bubble and crash not occurred and instead we just had normal annual appreciation during this time, prices would actually be greater than they are today.


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